Source: The post Health insurance in India needs urgent reforms has been created, based on the article “Health insurance must be inclusive” published in “Bussinessline” on 24th June 2025
UPSC Syllabus Topic: GS Paper2-Issues relating to development and management of Social Sector/Services relating to Health.
Context: Health insurance contributed ₹1.18 lakh crore in FY 2024–25, making up 36% of general insurance premiums. The sector has come under scrutiny for high claims ratios, pricing issues, and uneven access, prompting a need for reform and analysis.
For detailed information on India Needs to Prioritize Preventive Healthcare for a Healthier Future read this article here
Coverage Distribution and Premium Imbalance
- Disparity in Coverage and Premium Share: Retail health insurance covers only 5.58 crore lives but generates ₹41,501 crore (39%) in premiums. Group health covers 25.59 crore lives with ₹55,666 crore (52%) and government schemes cover 26.11 crore lives with just ₹10,513 crore(9.8%). Average premiums reflect this divide — ₹7,437 (individual), ₹2,175 (group), and ₹402 (government).
- High Loss Ratios Across Segments: The overall incurred loss ratio was 88.15%, with group health at 94%, government schemes at 115.28%, and individual at 75%. These indicate sustainability challenges, especially for public-funded programs.
- Insurer-Wise Claims Experience: Public sector insurers had a 103% incurred claims ratio, while private stood at 89%, and standalone health insurers at 65%, reflecting differences in risk strategy and pricing models.
Geographic and Provider Concentration
- Urban-Centric Premium Collection: Nearly 64% of premiums come from just five regions: Maharashtra (29.5%), Karnataka (11%), Tamil Nadu (10%), Gujarat (7%), and Delhi (6.5%), showing limited geographical spread.
- Private Sector Dominance in Care Delivery: Private healthcare accounts for 65% of hospitalisations in urban and 54% in rural areas. It also delivers 74% of outpatient care in cities and 67% in villages, indicating dependency on private services.
- High Costs for Serious Illnesses: Private care is significantly costlier — up to 6.8x higher for cardiac cases and 5.2x for respiratory illnesses. This worsens financial stress and raises premium costs.
Key Systemic Issues
- Incomplete and Denied Claims: Only 71.31% of claims (₹83,493 crore) were paid in FY24. 22.22% (₹26,037 crore) were unpaid — with ₹15,100 crore disallowed under policy terms and ₹10,937 crore repudiated. ₹7,584 crore remained pending.
- Need for Better Oversight: There are large variations in settlement practices among insurers. IRDAI review, policy standardisation, and Board-level monitoring are needed for transparency and fairness.
- Provider Pricing Disparities: Treatment costs vary widely, even within the same hospital groups across cities. This complicates premium calculationsand requires a uniform regulatory framework.
Reform Recommendations and Structural Changes
- Promote Standard Policies: The Arogya Sanjeevani policy, with uniform terms, should be scaled up to minimise dispute and bring pricing consistency.
- Establish a Healthcare Regulator: A national regulator is needed to handle pricing transparency, medical inflation, and advanced technologies in health coverage.
- Strengthen Tier-2/3 Infrastructure: Public health expansion can be financed via health bonds issued by municipal authorities or hospitals, eligible for insurer investments.
- GST Relief for Seniors: Reducing the 18% GST on health insurance to zero for senior citizens will make coverage more affordable.
- Process and Outreach Reforms: Insurers must adopt digital tools, improve claims efficiency, monitor fraud, and cut intermediation costs by promoting direct sales.
Public Sector Impact and Future Strategy
- Welfare Gains from PMJAY : The PMJAY scheme offers ₹5 lakh coverage per family and has reduced out-of-pocket spending by ₹1.25 lakh crore. Over 73.98 crore Ayushman Bharat accounts and 1.75 lakh wellness centres show strong inclusivity gains.
- Need for Integrated Reform: The General Insurance Council’s awareness campaign is welcome, but systemic welfare benefits require a comprehensive, integrated approach, not isolated reforms.
Question for practice:
Examine how pricing and claims settlement issues affect the effectiveness of health insurance as a welfare tool in India.
